**Pound Sterling Performance** Pound Sterling (GBP) is holding strong against the US Dollar (USD), trading close to a seven-week high at 1.3400. This happens as the US Dollar Index (DXY) dips to a seven-week low of 98.54, struggling after the Federal Reserve’s recent rate cut. The GBP/USD pair is stable at 1.3367, near its peak since October 22. This stability is due to a weaker USD and reduced expectations for a Bank of England rate cut in 2026. The Fed’s 25-basis-point rate cut was expected, and there may be a pause in further cuts in January, depending on upcoming economic data. Currency pairs like NZD/USD and EUR/USD also saw gains because of the weak USD. The US Dollar continued to fall due to soft employment numbers, pushing GBP/USD above 1.34. Gold prices increased as they approached record highs, driven by the weaker Greenback. **Federal Reserve Interest Rate Cut** The Federal Reserve cut rates by 25 basis points, setting the target range at 3.50–3.75%. This decision greatly affected market sentiment. For example, assets like Solana experienced a downturn after the Fed’s announcement. The Fed’s rate cut weakened the US dollar, boosting Pound Sterling toward the 1.3400 level. This drop in the Dollar Index to near 98.54 is a clear reaction to the new Fed funds rate. It suggests that the USD may continue to decline in the coming weeks. With this momentum, it may be a good idea to consider buying call options on GBP/USD with strike prices above 1.3450, aiming for more gains as we move into the new year. This strategy is supported by soft economic data, including US initial jobless claims for the week ending December 6th, which were higher than expected at 245,000. This approach allows us to take advantage of potential gains while clearly defining our risk. A key aspect to watch is the growing difference in policies between the Fed and the Bank of England (BoE). While the Fed is easing, market expectations for a BoE rate cut in 2026 are decreasing, especially after recent UK inflation data showed the Consumer Price Index (CPI) steady at 2.8%. This difference should continue to support Sterling. The market is starting to question the Fed’s hint of a pause, creating more opportunities. The CME FedWatch Tool indicates that derivatives markets see over a 60% chance of another 25-basis-point cut by March 2026. This mismatch between market expectations and central bank signals often leads to sustained movement in one direction. However, we should stay alert to the potential for a quick reversal if upcoming US data surprises positively. We saw similar patterns during the Fed’s 2019 easing cycle when strong data led to sudden rallies in the dollar. Therefore, using options to manage risk or considering straddles ahead of the next US jobs report might be a smart way to navigate the expected volatility. Create your live VT Markets account and start trading now.

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